The industrial sector, renowned for its transformative role from driving manufacturing to championing sustainable solutions, continues to wield global influence. As a critical cog in the economy, the industrial and machinery segment is primed for robust growth catalyzed by technological innovations and enhanced government support.
Therefore, it could be wise to invest in fundamentally robust industrial-machinery stocks Amada Co., Ltd. (AMDLY), Twin Disc, Incorporated (TWIN), and Tennant Company (TNC) in November.
The industrial sector has been remarkably resilient amid geopolitical instability and the Federal Reserve’s consistent interest rate hikes and is ascending due to an upsurge in global economic activity. Industrial production in the United States grew 0.3% year-over-year in September.
The industrial and machinery sector, an indispensable supply chain for equipment, machinery, and services across various industries, sees amplified demand as the economy expands, indicating potential for enduring growth. The global industrial machinery market is projected to reach $1.04 trillion by 2032, growing at a 5.3% CAGR.
Simultaneously, rapid industrialization in the Asia-Pacific region is triggering increased demand for high-tech automated industrial machinery. The demand uptick is anticipated to contribute substantially to the sustained growth trajectory of the industrial machinery sector.
Additionally, the industry is reaping additional benefits from technological breakthroughs in areas such as the IoT, AI, data analytics, and robotics. Manufacturers are leveraging these advancements to expand productivity and efficiency in their industrial machinery.
Furthermore, supportive government policies like the Inflation Reduction Act, the Bipartisan Infrastructure Law, and the CHIPS and Science Act could stimulate domestic manufacturing, providing further traction for the development of this sector.
In light of these encouraging trends, let's look at the fundamentals of the three Industrial - Machinery stocks, beginning with number 3.
Stock #3: Amada Co., Ltd. (AMDLY)
Headquartered in Isehara, Japan, AMDLY develops, manufactures, sells, leases, repairs, maintains, checks, and inspects metalworking machinery, software, and peripheral equipment. The company operates in two segments: Metal Processing Equipment and Metal Machine Tool.
On October 4, AMDLY announced the three-dimensional laser integrated system, “ALCIS-1008e,” that can perform different types of laser machining such as cutting, welding, and layered manufacturing, all in one machine. The system realizes high-precision laser machining to meet the needs of highly variable manufacturing. This should bode well for the company.
AMDLY’s trailing-12-month CAPEX/Sales of 4.02% is 32.3% higher than the industry average of 3.04%. Its trailing-12-month gross profit and net income margins of 44.02% and 9.63% are 45% and 59.2% higher than the industry averages of 30.35% and 6.05%, respectively.
Over the past three and five years, its tangible book value grew at CAGRs of 6.9% and 3.3%, respectively, while its total assets grew at 7% and 3.5% CAGRs over the same periods.
In the six months that ended September 30, 2023, AMDLY’s revenue and gross profit increased 10.4% and 12.7% year-over-year to ¥187.05 billion ($1.23 billion) and ¥83.48 billion ($550.29 million), respectively.
For the same period, its profit attributable to owners of parent and earnings per share stood at ¥19.76 billion ($130.25 million) and ¥57.15, up 16.2% and 16.9% from the prior-year period, respectively. As of September 30, 2023, its total current assets stood at ¥419.06 billion ($2.76 billion), compared to ¥398.72 billion ($2.63 billion) as of March 31, 2023.
Street expects AMDLY’s revenue in the fiscal year ending March 2024 to increase 91.9% year-over-year to $2.59 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 46.2% over the past year to close the last trading session at $40.70. Over the past three months, it gained 18.4%.
AMDLY’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Momentum, Stability, and Quality. Within the A-rated 79-stock Industrial-Machinery industry, it is ranked #4.
To see additional POWR Ratings for Growth and Sentiment for AMDLY, click here.
Stock #2: Twin Disc, Incorporated (TWIN)
TWIN designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment in the United States, the Netherlands, China, Australia, Italy, and internationally. The company operates in two segments: Manufacturing and Distribution.
On November 2, TWIN reinstated a regular quarterly cash dividend of $0.04 per share payable to shareholders on December 1, translating to a dividend yield of 0.29%. The reinstatement of TWIN’s quarterly dividend following the program’s suspension in February 2016 reflects the company’s ongoing progress toward achieving its medium-term financial targets.
TWIN’s trailing-12-month asset turnover ratio of 1.04x is 30.9% higher than the industry average of 0.79x, while its trailing-12-month levered FCF margin of 8.02% is 27.1% higher than the industry average of 6.31%.
Over the past three and five years, its revenue grew at CAGRs of 6.8% and 1%, respectively, while its EBITDA grew at a 119.7% CAGR over the past three years.
In the fiscal first quarter that ended September 29, 2023, TWIN’s net sales and gross profit increased 13.7% and 25.1% year-over-year to $63.55 million and $16.64 million, respectively. Moreover, its cash stood at $20.43 million, up 54.6% year-over-year.
For the same quarter, its free cash flow came at $6.11 million, compared to a free cash flow of negative $2.93 million in the prior year quarter. As of September 29, 2023, its total current liabilities stood at $92.22 million, compared to $100.10 million as of June 30, 2023.
The stock has gained 44% year-to-date to close the last trading session at $14. Over the past year, it gained 30.8%.
TWIN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
TWIN has a B grade for Growth, Value, Sentiment, and Quality. Within the same industry, it is ranked #2.
Beyond what we’ve stated above, we have also rated the stock for Momentum and Stability. Get all ratings of TWIN here.
Stock #1: Tennant Company (TNC)
TNC designs, manufactures, and markets floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
Last month, TNC expanded its offerings and unveiled two new models of walk-behind floor scrubbers – the T260 and the T391, which would help serve customers across all facility types. At the heart of these innovations is presenting customers with an increased variety of cleaning solutions at competitive prices.
TNC returned $6.7 million to shareholders through dividends and share repurchases. It announced a 5.7% increase in the quarterly cash dividend to $0.28 per share, marking the 52nd consecutive year the company has increased its annual cash dividend payout.
Its annual dividend of $1.12 per share translates to a dividend yield of 1.34% on the current share price. Its four-year average dividend yield is 1.34%. The company’s dividend payouts have grown at a CAGR of 6.4% over the past three years and 4.8% over the past five years.
TNC’s trailing-12-month asset turnover ratio of 1.19x is 49.2% higher than the industry average of 0.79x. Its trailing-12-month net income and levered FCF margins of 8.36% and 10.61% are 38.3% and 68.2% higher than the industry averages of 6.05% and 6.31%, respectively.
TNC’s revenue grew at 6.2% and 1.8% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 11.2% and 17.8% CAGRs over the past three years, respectively.
For the fiscal third quarter that ended September 30, 2023, TNC’s net sales increased 15.9% year-over-year to $304.70 million, while gross profit stood at $132 million, up 31.1% from the year-ago quarter. The company’s adjusted EBITDA increased 35.8% year-over-year to $45.90 million.
Also, its adjusted net income and adjusted earnings per share came in at $25.40 million and $1.34, representing increases of 36.6% and 36.7% from the prior-year quarter. For the nine months that ended September 30, TNC’s net cash provided by operating activities stood at $124.60 million, compared to net cash used in operating activities of $38.80 million in the year-ago period.
TNC increased its full-year 2023 guidance and expects net sales between $1.23 billion and $1.25 billion and adjusted EBITDA between $190 million and $200 million.
Street expects TNC’s revenue in the fiscal fourth quarter ending December 2023 to increase 6.5% year-over-year to $309.83 million. Its EPS is expected to be $1.26. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 34.8% year-to-date to close the last trading session at $83.02. Over the past year, it has gained 25.5%.
It is no surprise that TNC has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
Also, the stock has a B grade for Growth, Value, Momentum, Stability, Sentiment, and Quality. It is ranked first within the same industry.
Get the POWR Ratings for TNC here.
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AMDLY shares were unchanged in premarket trading Tuesday. Year-to-date, AMDLY has gained 32.88%, versus a 16.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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